World’s first climate-aligned bond index launches – as China steps up to leadership in green finance
At what is possibly the largest ever global conference on responsible investment, held in Singapore this week by the U.N. supported Principles for Responsible Investment right after the G20 leaders met in China, it is clear that the winds of change are blowing hard behind green finance.
On the eve of the conference it was announced that China Central Depository & Clearing Co had partnered with the international, investor-focused not-for-profit Climate Bonds Initiative (CBI) and CECEP Consulting to launch the ChinaBond China Climate-Aligned Bond Index on Sept. 2,. It is the world’s first Climate-Aligned bond index, designed to fill a gap in tracking a growing source of bond issuance.
Investors may wish to note: climate-aligned bonds are used to finance low carbon and climate adaptation infrastructure, including so-called ‘green bonds’ with the use of proceeds defined and labelled as green, as well as a larger universe of bonds financing climate-aligned assets that do not carry a green label.
Climate-aligned bonds are currently financing assets across various climate themes: energy, transportation, construction, water, waste pollution control, agriculture and forestry, says the CBI.
In order to conform to international standards and satisfy the demand of international investors, CBI and CECEP Consulting have identified climate-aligned bonds for the Index based on the use of funds and the information of the issuers’ industry, main business and products.
The data analysis says the base date of the ChinaBond China Climate-Aligned Bond Index has been set as Dec 31, 2009 and the base value is 100. As of July 29 2016, the index has 278 constituents, a cap-weighted duration of 5.66, a Total Return Index return of 10.24 percent in the recent year and a market value outstanding of 1.31 trillion RMB ($194.6 billion).
The launch of this Index now provides a series of indicators to reflect the price change of the overall climate-aligned bond market and a climate-aligned investment performance benchmark for domestic and foreign investors.
“It improves the transparency of the climate-aligned bond market in China, sets a positive social image of climate-aligned bond issuers and promotes the development of the green economy and the formation of a resource-saving and environment-friendly society,” says the Climate Bond Initiative.
It certainly contributes to the ongoing global debate about green finance within the context of investors acting on climate risk, and in greater pursuit of a growth agenda around sustainability. The PRI conference in Singapore has been attended by a wide range of institutional investors and environmental, social and governance (ESG) issues have been in the spotlight, as has a sustainable financial system.
As a state-owned financial institution, CCDC bears the national will and represents market needs. It is the first central securities depository approved by the State Council in China, and has prepared and issued ChinaBond Indices since 2002.
All ChinaBond Indices have clear methodology and users may acquire ChinaBond Indices data through many channels, says the Climate Bonds Initiative. China is the largest country of issuance in the climate aligned universe. Unlabeled issuance is dominated by China Railway Corporation – the largest issuer with $194 billion, a figure that highlights the significance of bonds within the transport sector and demonstrates the continuing importance they will play in raising finance for low-carbon transportation.
China is also seen as a leader in the labelled green bond market and is the largest country of issuance in 2016 year to date, as covered previously on Entelligent.com.
As the G20 summit ended on the eve of this conference, a communique was issued by the leaders which took the global emphasis on green finance to a new level.
Welcoming the G20 Communiqué, Zhou Xiaochuan, Governor of the People's Bank of China, representing the co-chair of the Green Finance Study Group (GFSG) said: "The global financial system has a major role to play in mobilizing private capital for investments in green sectors, and appropriate incentives should to be given to green investment."
For investors, it may be time to begin thinking of green bonds as less of a quirky option than one that could soon become mainstream.
Dina Medland is an independent writer, editor and commentator with a strong focus on issues around corporate governance, ethics, the workings of the boardroom and sustainable business. She is on the team of contributors to @ForbesEurope and is an ex-Financial Times staff member who has been a regular contributor in recent years. Further details about her background and a portfolio of work – including her commercially sponsored blog ‘Board Talk’ are available on her website http://www.dinamedland.com